WTI Oil Rises a Fifth Day as Egypt Unrest Boosts Concern

By Mark Shenk -
Aug 15, 2013

West Texas Intermediate crude rose
for a fifth day, capping the longest stretch of gains since
April, as unrest in Egypt bolstered concern that Middle East
supplies may be cut. Brent oil climbed to a five-month high.

Futures advanced 0.4 percent in New York after Egypt
declared a state of emergency and more than 500 people were
killed as security forces broke up sit-ins. The country controls
the Suez Canal, which is used by tankers carrying oil to Europe
and North America from the Arabian Peninsula. WTI retreated and
equities tumbled after falling U.S. jobless claims raised
concern that the Federal Reserve will trim stimulus.

“Oil is rallying on the eruption of violence in Egypt,”
said Bob Yawger, director of the futures division at Mizuho
Securities USA Inc. in New York. “Equities are getting pounded,
which is putting downward pressure on the market. WTI is caught
between these opposing forces.”

WTI crude for September delivery increased 48 cents to
$107.33 a barrel on the New York Mercantile Exchange. It was the
highest settlement since Aug. 1. The volume of all futures
traded was 2.4 percent above the 100-day average at 3:14 p.m.

Brent oil for September settlement, which expired today,
rose 91 cents, or 0.8 percent, to $111.11 a barrel on the
London-based ICE Futures Europe exchange, the highest close
since March 7. The more-active October contract gained 78 cents
at $109.60. Trading was 9.8 percent below the 100-day average.

Widening Spread

The European benchmark crude traded at a $3.78 premium to
WTI at today’s settlement, the widest at the close of trading
since July 30.

WTI surged 8.8 percent in July, the most since August of
last year, as Egypt’s army deposed Mohamed Mursi as president.
Police yesterday charged into two Cairo squares occupied by
Mursi supporters protesting his ouster. At least 525 people
died, according to official tallies.

“Headlines of instability in Egypt, risks of spillover to
other already-unstable countries in the region and fears of a
blockage in the Suez Canal, however unlikely, could lend
themselves to creating fear in the oil market,” said Amrita Sen, chief oil market strategist at Energy Aspects Ltd., a
research company in London.

Suez Canal

Egypt controls the Suez Canal and the Suez-Mediterranean
Pipeline, through which a combined 4.51 million barrels a day of
crude and refined products were shipped between the Red Sea and
the Mediterranean in 2012, according to the Energy Information
Administration, the statistical arm of the U.S. Energy
Department.

The Middle East accounted for 35 percent of global oil
output in the first quarter of this year, International Energy
Agency data show.

“Geopolitical risk is being priced into the market,” said
Gene McGillian, an analyst and broker at Tradition Energy in
Stamford, Connecticut. “The upside should be limited because
the military is in control now and isn’t going to allow anything
to disrupt the shipment of oil through the canal.”

President Barack Obama said today that the U.S., which
provides Egypt’s army with more than $1 billion a year under a
decades-old alliance, will cancel joint military exercises
scheduled for next month and consider further measures.

“The two most-recent highs are our next targets,” Yawger
said. “WTI reached $108.82 on Aug. 2 and $109.32 on July 19.
We’ll have to see if the bulls can take these out.”

Jobless Claims

Applications (INJCJC) for unemployment insurance payments fell by
15,000 to 320,000 in the week ended Aug. 10, the fewest since
October 2007, a Labor Department report showed today in
Washington. The median forecast of 44 economists surveyed by
Bloomberg called for 335,000.

WTI has climbed 17 percent this year as the Fed maintained
unprecedented monetary stimulus to bolster growth. Improving
economic data bolsters speculation the central bank will curb
its $85 million in monthly bond purchases.

U.S. equities declined as the employment data fueled
stimulus speculation. The Standard & Poor’s 500 Index and the
Dow Jones Industrial Average each slid 1.5 percent.

“The situation in Egypt is obviously very supportive for
the market,” said John Kilduff, a partner at Again Capital LLC,
a New York hedge fund that focuses on energy. “The strong
employment data today raises the prospect of the Fed tapering
bond purchases. This would reduce the pool of easy money that’s
gone into commodity markets.”

Commodities also climbed on a weaker dollar. The currency
fell as much as 0.8 percent to $1.3363 per euro. A weaker U.S.
currency increases the appeal of dollar-denominated commodities
as an investment.

U.S. Stockpiles

U.S. crude inventories slid by 2.81 million barrels last
week to 360.5 million, the lowest level since January, the EIA
said yesterday. Supplies at Cushing, Oklahoma, the delivery
point for WTI futures, declined for a sixth week to 38.5
million, the least since March 2012.

Implied volatility for at-the-money WTI options expiring in
October was 21.8 percent, unchanged from yesterday, data
compiled by Bloomberg showed.

Electronic trading volume on the Nymex was 570,094
contracts as of 3:14 p.m. It totaled 652,593 contracts
yesterday, 0.4 percent above the three-month average. Open
interest was 1.93 million contracts.